What is Sales and Trading in financial markets?

Sales and Trading (S&T) is a division within investment banks and financial institutions that facilitates the buying and selling of financial securities like stocks, bonds, options, currencies, and commodities. Sales teams present clients with different investment opportunities and market insights, while traders execute these trades and maintain liquidity in the markets.

Unlike Investment Banking (IB), which focuses on large corporate transactions like mergers and capital raising, Sales and Trading deals with securities that represent smaller percentages of companies. S&T focuses more on secondary market transactions than on corporate deal-making.

Institutional Sales and Trading requires expertise, as executing a significant order all at once could move the market and create price volatility. To efficiently manage the high volumes involved, salespeople and traders use strategies to break up larger trades and manage risk. They typically generate revenue through commissions, fees, and bid-ask spreads on transactions.

What are the key roles in a Sales and Trading division?

The S&T division encompasses two different yet closely related roles: sales and trading. Here’s what each role entails:

Sales: The client-facing side

Sales professionals focus on building relationships with institutional investors, companies, and other market participants. Their responsibilities include:

• Understanding their client’s investment objectives and risk tolerance
• Recommending relevant financial products and trading strategies
• Providing market insights, research, and specialized investment industry knowledge
• Acting as intermediaries between clients and traders to execute transactions.

Sales teams typically specialize in specific asset classes and work on dedicated desks managing a portfolio of clients. They collaborate closely with traders and financial analysts to structure and execute trades based on market conditions and the needs of their clients.

Trading: The market-facing side

Traders execute orders on behalf of clients and manage the firm’s market exposure. Their key responsibilities include:

• Executing client trades efficiently to minimize market impact
• Managing the firm’s inventory of financial products
• Providing liquidity by acting as market makers, buying and selling securities
• Assessing and mitigating market risks
• Engaging in proprietary trading to seek potential returns for the firm.

Some traders specialize in proprietary trading, which involves taking positions in the market to generate potential profits. Others focus on market-making, helping to match buyers and sellers for trades. Due to the complexity of modern trading, many firms employ quantitative analysts who develop models to support trading strategies.

Types of trading

Trading teams specialize in three different types of trading: proprietary trading, agency trading, and flow trading.

Proprietary traders

Proprietary traders, or ‘prop traders’ work for the trading team itself rather than executing trades for clients. Their goal is to maximize the firm’s profits through investments in stocks, bonds, derivatives, or other financial instruments. Prop traders take on significant risk as they’re using the firm’s capital to make their trades rather than earning service fees.

This style of trading is similar to a hedge fund approach, where the firm’s financial success depends on the trader’s ability to make profitable investments. Proprietary trading was more common before the 2008 financial crisis, and many large banks have since scaled back due to regulatory changes.

Agency traders

Agency traders act as intermediaries for their clients, executing orders on exchanges like NASDAQ , NYSE, LSE, HKEX as well as block trades . They work on behalf of clients without taking on the risk of holding the assets themselves.

Unlike proprietary traders, agency traders don’t have the freedom to make independent trading decisions, and they earn profits through commissions and fees for their services. Their primary role is to ensure that trades are executed in the best interests of their clients with no market risk taken on by the firm itself.

Flow traders

Flow traders are a hybrid between proprietary and agency trading, where traders make principal transactions for their clients. The key difference with flow trading is that it involves a ‘flow’ of client funds, rather than the firm’s own funds.

This type of trading allows firms to take some risk while still serving clients by providing liquidity and making markets for various financial instruments.

The difference between Sales and Trading and Investment Banking services

Both S&T and Investment Banking facilitate financial transactions, but they serve distinct roles. The primary difference is in the type of transactions they handle and their clients’ objectives.

Investment Banking

Investment Banking focuses on large, company-level financial activities, such as:

• Raising capital through stock or bond issuance
• Advising on mergers, acquisitions, and corporate restructuring
• Helping businesses secure funding for expansion or strategic initiatives.

Investment bankers work closely with corporations, governments, and institutions to structure these transactions and often earn fees based on the size and complexity of the deals. Their work tends to be more analytical and process-driven, requiring financial modeling, valuation analysis, and strategic advisory.

Sales and Trading

The Sales and Trading desk operates in the secondary market, helping institutional investors – like hedge funds, asset managers, listed corporations and pension funds – buy and sell financial instruments like stocks, bonds, foreign exchange (FX), derivatives, and commodities.

Sales professionals develop relationships with clients, offering market insights and recommending trades based on their needs. They do not act as financial advisors, but rather provide clients with access to market information. Traders then execute these trades and help maintain liquidity by making markets, often earning revenue through commissions and the bid-ask spread. The Sales and Trading environment is typically fast-paced and market-driven, requiring quick decision-making and risk management.

Investment Banking vs Sales and Trading

Let’s break down the key differences between Investment Banking and S&T:

• Investment Banking focuses on corporate financing and strategic advisory, while Sales and Trading facilitates market transactions for institutional investors.
• Investment Banking transactions involve issuing new securities (primary market) while Sales and Trading deals with existing securities (secondary market).
• Investment bankers focus on long-term deals while Sales and Trading professionals respond to market movements in real-time.

What are the primary asset classes managed by Sales and Trading teams?

Sales and Trading teams are structured around major asset classes. Most investment banks divide their trading operations into Equities and FICC (Fixed Income, Currencies, and Commodities), with further subdivisions within each category.

Equities

Equities trading involves buying and selling stocks and related instruments. It can be further divided into:

• Cash equities: Trading individual stocks in the secondary market
• Equity derivatives: Trading stock-related derivatives like options, futures, and swaps
• Delta one: Trading equity index products, ETFs, and swaps
• Flow options: Standardized equity options traded on exchanges
• Exotics & hybrids: More complex, structured equity products.

FICC: Fixed income, currencies, and commodities

FICC covers a broad range of financial instruments, including bonds, foreign exchange, and commodities.

Fixed income

This refers to debt securities and derivatives, which can be further broken down into:

• Rates: Rates involve government bonds (Treasuries, agencies) and interest rate derivatives (swaps, options)
• Credit: This involves corporate bonds (high-grade, high-yield), credit derivatives, and syndicated loans
• Securitized products: Securitized products include mortgage-backed securities (MBS) and asset-backed securities (ABS)
• Municipals: These are tax-exempt bonds issued by states, cities, and non-profits.

Foreign exchange (FX)

FX desks handle currency trading across global markets:

• G10 FX: Major currencies like USD, EUR, JPY, GBP, etc.
• Emerging markets FX: Currencies from developing economies.
• Non-Deliverable Forwards (NDFs) : forward contract between two currencies with no physical settlement
• FX options: Currency derivatives that hedge against exchange rate fluctuations.

Commodities

Commodities trading focuses on physical products, including:

• Precious metals: Gold, silver, and other metals
• Agricultural commodities: Grains, coffee, sugar, and soft commodities
• Energy: Oil and natural gas.

How does technology impact the efficiency of Sales and Trading operations?

Technology has transformed Sales and Trading by making markets faster and more efficient. Today’s trading floors rely on advanced systems to execute trades, analyze market trends, and manage risk in real-time.

Key technologies making S&T more efficient include:

Algorithmic trading systems

High-frequency trading (HFT) platforms and algorithmic systems automatically execute trades based on predefined rules. These technologies are capable of analyzing price movements and market conditions within milliseconds.

AI and machine learning models

Artificial intelligence (AI) processes vast amounts of data to detect patterns and provide insights to optimize trading strategies. Machine learning models continuously refine these predictions based on new data.

Real-time data feeds

Real-time data provides up-to-the-second information on pricing, trends, and patterns that can help traders make faster and more informed decisions.

Electronic trading platforms

Electronic trading platforms allow traders to execute trades instantly across multiple markets, reducing the risk of errors and slippage while increasing market liquidity.

The importance of regulatory compliance in the Sales and Trading division

Following the 2008 financial crisis, regulations like the Dodd-Frank Act in the U.S. and the Markets in Financial Instruments Directive (MiFID) II in Europe have reshaped trading activities and risk management practices. These regulations enhance transparency, reduce systemic risk, and improve market stability. Complying with these rules is now a central part of the S&T division, adding complexity to their operations.

Sales and Trading professionals must adapt to these evolving regulations and ensure their activities comply with new reporting and trading requirements. For example, Dodd-Frank mandates more transparency in derivatives trading while MiFID II tightens rules around market structure and investor protection. Failing to adhere to these regulations may result in significant fines, legal action, and reputational damage, depending on the severity of the violation.

This material is for informational purposes only and should not be considered as an investment recommendation or a personal recommendation.